atiner's conference paper series rel2016-1990 · the foundational principles of economics.1...

ATINER CONFERENCE PAPER SERIES No: LNG2014-1176

1

Athens Institute for Education and Research

ATINER

ATINER's Conference Paper Series

REL2016-1990

Andreas Lind

Independent Scholar

Portugal

Radical Capitalism as a Coherentist Philosophy

ATINER CONFERENCE PAPER SERIES No: REL2016-1990

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This paper should be cited as follows:

Lind, A. (2016). "Radical Capitalism as a Coherentist Philosophy", Athens:

ATINER'S Conference Paper Series, No: REL2016-1990.


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ISSN: 2241-2891

28/09/2016


Radical Capitalism as a Coherentist Philosophy

Andreas Lind

Independent Scholar

Portugal

Abstract

Analyzing the connection between nominalism and capitalism, Radical

Orthodoxyʼs authors see Nietzsche as the one who gave the operative principle

to the liberal nominalist tradition: the will-to-power. In their point of view,

capitalism is based on the principle that each individual who operates in the

free market, attempts to impose by power his own will against others. Thus,

nominalism affirms that different individuals have contradictory wills. Based

on the subprime crisis in 2007, one could argue that the nominalist philosophy

played a role in contemporary capitalism, not only in the matter of individual

will, but also by being focused on the logical coherence of the system, rather

than focusing on any kind of realistic foundation. By rejecting ontology,

nominalism made validity, that is, logical coherence, the main criterion for

accepting a system. The massive practice of subprime credits, which brought

about a global financial crisis, was only possible within this nominalist

perspective of validity. This perspective allowed the granting of credit based

only on the speculative increase of house prices, the practice at the origin of the

present global financial crisis.

Keywords: Coherentism, Neo-Liberal Politics, Nominalism, Radical

Capitalism


Introduction

Since the subprime crisis of 2007, there has been much literature across

many fields criticizing "neo-liberalism" (i.e. the radically deregulated free

market economy as first proposed in the 1970s). For many, the 2007 crisis

vindicated critics of the FEDʼs and IMFʼs policy of deregulation in the 1980s

and 1990s. According to these critics, such as Nobel Prize winner Joseph

Stiglitz,1 the policy of deregulation was too narrowly focused on inflation.

Even the ex-President of the FED from that time, Alan Greenspan, admitted

that something had not worked.2

Some authors go even further, saying that the 2007 crisis was not simply a

failure of radical capitalism, but the beginning of the fall of the free market

paradigm. They cite Thomas Kuhn, applying his thesis in the economic-

political field, in order to show how contemporary economics insist on

applying solutions from the neo-liberal paradigm which have consistently

failed to achieve the promised results.3

One thing, at least, is clear: we are living through a real crisis of the free

market system. In fact, even Francis Fukuyama, who predicted the triumph of

liberal democracies all over the world,4 now maintains (in light of the 2007

crisis) that Western society is itself in danger and may fail in the future.5

In the context of the profound global crisis, it is natural that those who

criticized previous economic policies find in such a crisis proof for their

positions. Critiques of free market economy (or "neo-liberalism," as it is called

by its critics) have been developed not only in the fields of economics and

politics, but in sociology, and even philosophy and theology.

1 Joseph Stiglitz, Globalization and its discontents (New York: W.W. Norton & Company,

2002), 34, 86-87. 2 "(…) it turned out that Iʼd been wrong to abandon my skepticism about the ongoing surplus.

Those rosy ten-year forecasts were in fact utterly mistaken." (Alan Greenspan, The age of

turbulence: adventures in a new world (New York: Pinguin Press, 2007), 224). 3 Hugo Assmann, & Franz J. Hinkelammert, Lʼidolâtrie de marché: critique théologique de

lʼéconomie de marché (Idolatry market: theological critique of the market economy), trans. C.

Durban, & L. Durban (Paris: Cerf, 1993), 30-31. "Le grand défi actuel, cʼest un changement de

paradigme (The great challenge now is a paradigm shift)" (Gaël Giroud, & Cécile Renouard,

Vingt propositions pour réformer le capitalisme (Twenty proposals to reform capitalism)

(Paris: Flamarion, 2012), 26). "Un changement de paradigme sʼimpose (A paradigm shift is

needed)" (Giroud and Renouard, Vingt propositions pour réformer le capitalisme, 320). 4 "I argued that a remarkable consensus concerning the legitimacy of liberal democracy as a

system of government had emerged throughout the world over the past few years, as it

conquered rival ideologies like hereditary monarchy, fascism, and most recently communism.

More than that, however, I argued that liberal democracy may constitute the 'end point of

mankindʼs ideological evolution' and the 'final form of human government,' and as such

constituted the 'end of history.'" (Francis Fukuyama, The end of History and the last man (New

York: Free Press, 1992), xi). 5 "(…) there is no guarantee that this self-correction will occur, perhaps because the nonelites

are poorly organized, or they fail to understand their own interests correctly." (Francis

Fukuyama, Political order and political decay: from the industrial revolution to the

globalization of democracy (New York: Farrar Straus and Giroux, 2014), 27).


The critique made in these latter fields relies on a form of Liberation

Theology. But unlike traditional Liberation Theology, which was aimed at the

particular context of Latin America, this new variant is global in that it attacks

the foundational principles of economics.1 This hybrid of theology,

philosophy, and economics can be seen especially in the relatively new

theological and philosophical movement called Radical Orthodoxy.2

Yet this is not the only variety of theological critique being made about

neo-liberalism. Even the Magisterium of the Catholic Church has been

assuming a critical position towards free market economy, as we see in

Benedict XVIʼs encyclical Caritas in veritate, and in Pope Francisʼ recent

apostolic exhortation Evangelii gaudium and his most recent encyclical

Laudato Siʼ. The two popes asked for international institutions such as the

United Nations to promote a structural reform of economics at an international

level.3

According to this theological-philosophical critique, neo-liberalism

implies a problematic theology.4 For, a radical free market inevitably promotes

the ideals of force, efficiency, autonomy of choice — the "credo of the market"

1 Geraldo de Mori, "Une théologie à lʼécole des pauvres: les nouvelles 'frontières' de la

théologie de la libération (A theology at the school of the poor: the new 'boundaries' of

liberation theology)," Revue théologique de Louvain, 46, no. Juillet-Septembre (2015): 372-

373. 2 "Our current global situation is different, and yet is in essential continuity with the

circumstances in which this book was written. Today, neo-liberalism has further extended its

sway, but has now begun to mutate into a new mode of political tyranny." (John Milbank,

Theology and social theory: beyond secular reason (Oxford: Blackwell, 2006), xi). Milbank is,

indeed, quite violent in his critiques against modern liberal tradition: "European and American

liberal democracy has also engendered a continuous horror almost as grave as the Holocaust,

and a more troublingly sustainable mode of nihilism, appropriately disguised by an

unparalleled reign of kitsch (including the American Holocaust industry): this is the sequence

of deliberate terror and extermination deployed against civilian populations as a primary

instrument of war and neo-colonial power from the Congo and the Philippines through

Hiroshima, Palestine, Kenya, Algeria and Vietnam to the Gulf War and Afghanistan. This

sequential instance – unparalleled in pre-modernity – shows that the source of terror is not

simply "totalitarianism," but rather the emptiness of secular power as such. It also shows that

"liberal democracy" is a mere virtual circus designed to entertain the middle-classes of the

privileged world." (John Milbank, Being reconciled: ontology and pardon (London: Routledge,

2003), 5). 3 "In the face of the unrelenting growth of global interdependence, there is a strongly felt need,

even in the midst of a global recession, for a reform of the United Nations Organization, and

likewise of economic institutions and international finance, so that the concept of the family of

nations can acquire real teeth." (Pope Benedict XVI, "Encyclical Letter Caritas in veritate [26

Jun. 2009]," AAS 101 (2009), 641-709 §67). "In this context, some people continue to defend

trickle-down theories which assume that economic growth, encouraged by a free market, will

inevitably succeed in bringing about greater justice and inclusiveness in the world. This

opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the

goodness of those wielding economic power and in the sacralized workings of the prevailing

economic system." (Pope Francis, "Apostolic Exhortation Evangelii gaudium [24 Nov. 2013],"

256: AAS 105 (2013), 1123 §54). 4 Some go so far as to call it a "perverse theology" (Assmann and Hinkelammert, Lʼidolâtrie de

marché: critique théologique, 22-23).


(using Assmannʼs terminology)1 — as the criteria by which we understand

reality. And how we understand reality affects how we perceive God.

Thinkers from the movements of both Radical Orthodoxy and Liberation

Theology assert that neo-liberalism is in one way too realistic. According to

neo-liberalism, things like austerity and unemployment are inevitable.2 And

proponents of Radical Orthodoxy and Liberation Theology argue that

economic systems ought to be "utopian," and not merely accept reality as it

comes.

However, the philosophical and theological problem of neo-liberalism is

rather a lack of realism. I agree with John Milbank that liberalism (in the

traditional sense) is connected to nominalism.3 But, for me, this connection

implies also the abandonment of a foundationalist philosophy in favor of a

coherentist one.

In the present article I propose to show how, based on the subprime crisis

in 2007, nominalist philosophy influenced contemporary capitalism. This

influence can be seen in contemporary capitalismʼs emphasis on individual

choice (i.e. will) [as Milbanks notes], as well as in how it focuses on the logical

coherence of its principles (coherentism) while neglecting to consider whether

its principles have a foundation in reality (foundationalism). By rejecting

ontology, nominalism made validity—that is, logical coherence—the main

criterion for accepting a system. It was precisely this neglect of realistic

thinking and this exaggerated emphasis on validity that led to the widespread

practice of irresponsibly granting credit based on tenuous and speculative

predictions regarding the value of houses—the issue that sparked the present

global financial crisis.

1 Assmann and Hinkelammert, Lʼidolâtrie de marché: critique théologique, 33-138.

2 Assmann and Hinkelammert, Lʼidolâtrie de marché: critique théologique, 186-187. "In the

case of libertarians, one is confronted with the phenomenon of a Whiggism undismayed by any

evidence. The most astonishing thing about this tendency (as represented by Anthony Giddens

and others) is that it remains more attached to the most metaphysical element of the Marxist

legacy, namely its fatalist and logicist belief in capitalism as "a necessary stage" in human

history, than to its more rigorous and scientific aspect, namely its deconstruction of the logic of

capitalist organization. Hence it implies that global neo-liberalization since the 1970s must be

understood as a necessary and continuing sweeping away of paternalist, almost quasi-feudal

relics: the new world-wide "revolt against deference" shows that socialists were wrong to

assume that the road of the liberal via negativa had been travelled to the end." (Milbank, Being

reconciled: ontology and pardon, 163). 3 "It is in this inescapable imperative of nominalism-voluntarism that one discovers the kinship

at root of modern absolutism with modern liberalism." (Milbank, Theology and social theory:,

14).


Radical Capitalism Is Based on Nominalism

There is no Neutrality

Neo-liberal contemporary policy, in the main European and international

institutions such as the IMF and ECB,1 presumes that "market forces" are

something that belongs to nature itself. This means that neo-liberal economics

is not only the "best option that we have," but is also ideologically neutral.

Neo-liberal authors such as Hayek explicitly take this for granted.2

In fact, the principles of the free market establish a rationality that would

be, for contemporary neo-liberal economists, strictly scientific: namely, reason.

However, such principles do not belong to the nature of human society;

moreover, they have hidden presuppositions that are not neutral.

Hugo Assmann and Franz Hinkelammert say as much in their critique

against contemporary neo-liberalism. They show that the principles of the free

market assume, even if only implicitly, a specific anthropology which cannot

be deduced purely by reason.3 Namely, free market economics assume that

people are rational and are able to identify their best options (economically

measured) and choose them.4,5

Theologically speaking, we could say that this

anthropology fails to account for original sin and its effects (fallen human

nature).

Hence, as John Milbank shows, "neutral rationality," the dream of

modernity, is a mythos. That is what we have learned from Nietzsche: there is

no such thing as neutral rationality—all appeals to rationality are based on

contingent presuppositions about human nature, which can only be applied in a

particular context. We cannot access nature itself: we can only propose a

narrative that is historical and particular—not absolute.6 Neo-liberal

economics, then, is only one possible narrative according to which human

beings can organize their lives. So, capitalism is one way of living among

many; it is not the way that is established necessarily by nature.

In this sense, Radical Orthodoxyʼs authors, such as Milbank, Graham

Ward, and Stephen Long, think that we are entering a new cultural phase called

The Post-Secular. As with leading post-modern authors, they try to make their

arguments using narration; namely, they accept that reason cannot explain

facts, but only interpret them. Since they are aware of the impossibility of

building knowledge based on an absolute, neutral and universal reason, as

people attempted to do in the past, these authors show that each interpretation

1 IMF – International Monetary Fund; ECB – European Central Bank.


3 Ibid., 81-85.

4 Milbank, Theology and social theory:, 14-15.

5 This is the idea of the father of liberalism, Adam Smith, of an "invisible hand" that

automatically puts the market in equilibrium (Assmann and Hinkelammert, Lʼidolâtrie de

marché: critique théologique, 108). 6 Milbank, Theology and social theory:, 269-270.


has its own presuppositions, which are grounded in theology (as we will

discuss below).1

Thus, secular neutrality is something that does not exist, because each

interpretation/narration contains, implicitly, a philosophy and theology behind

itself. So the main question becomes: "Which kind of theology and philosophy

is implicit in economic theories?"2

Nominalism in the Establishment of Capitalism

Milbank detects, inside neo-liberal economic principles, the theological

idea of nominalism, according to which the world (nature) is completely

independent from Godʼs logos.3 We must notice that this is the nucleus of

nominalism. It means that when we, following Radical Orthodoxyʼs authors,

affirm that capitalism contains and implies (implicitly) a nominalist

philosophy, we are not saying that captalism and its adherents presume that the

World was made by Godʼs Will: they only presume that reality is independent

from Godʼs logos or from the logos of a given exterior reality.

Nominalism was born in the late medieval age by Scotus and Ockham,

who opposed the thomistic idea of participation.4 Their main concern was a

theological one. The first nominalists wanted to defend Godʼs omnipotence. In

order to do that, they made a radical separation between God and the world;

between nature, which is creature, and its Creator: in other words, between

reality and the source of reality.5

Scotus asserted that the world was the result of Godʼs will alone, and not

the result of any participation in Godʼs nature.6 According to John Milbank,

1 Milbank, Theology and social theory:, 281-282.

2 Assmann and Hinkelammert, Lʼidolâtrie de marché: critique théologique, 82.

3 John Milbank, Beyond secular order: the representation of being and the representation of

the people (Oxford: Blackwell, 2013), 128-137. 4 "In the thought of the nominalists, following Duns Scotus, the Trinity loses its significance as

a prime location for discussing will and understanding in God and the relationship of God to

the world. No longer is the world participatorily enfolded within the divine expressive Logos,

but instead a bare divine unity starkly confronts the other distinct unities which he has

ordained." (Milbank, Theology and social theory:, 15). 5 Conor Cunningham, Genealogy of nihilism: philosophies of nothing and the difference on

theology (London: Routledge, 2002), 14-15. "But on the other hand, Trinitarian doctrine

suggests that God within himself includes the 'impossible' creative going beyond himself (…)

Godʼs creating, since he is omnipotent, can 'only' be in one aspect his going forth within

himself and returning to himself in responding to this going forth, while our created derivation

from God and returning to God can 'only' be, again because of this omnipotence, entirely one

with the event of divine generation and procession." (Milbank, Theology and social theory:,

xxvii). 6 "It is possible to dispute the precise tenor of the more extreme voluntarist statements – to the

effect, for example, that God might will us to hate himself. This dispute, however, is not all

important; what matters is the overwhelming nominalist stress on the gulf between Godʼs

potentia ordinata, his declared will, which is factually, precisely known and serves as the basis

for legal covenants with humanity, and his potentia absoluta, the infinite power of God which

is absolutely unknowable for theology and knowable only formally, for logic." (Milbank,

Theology and social theory:, 15).


this kind of reasoning leads to the conclusion that creation is the result of an

arbitrary will.1

The omnipotence of God is preserved by nominalism, because the world is

so completely different (and lower) than God—and not only the world, but also

nature, and even rationality. What exists is merely the result of Godʼs Will, and

bears no necessary relationship to His nature.

Nominalist authors have had a great philosophical impact on modernity.

This impact is what matters in this paper, concerning the presence of

nominalism in capitalistic principals, meaning in the contemporary neo-liberal

politics. In this context, I would like to emphasize three philosophic

consequences of nominalism, which are connected with neo-liberal

contemporary economics.

The first consequence is autonomy. Although nominalism preserves the

omnipotence of God, it abandons the idea of participation. Thus, the world

becomes disconnected from Godʼs nature: that means that the world—nature—

is autonomous of Godʼs logos.2

The second consequence regards the way that reality is made: reality is

made by Will, and not by an intrinsic connection to Godʼs nature. So, the will

is what determines reality (no matter if it is Godʼs Will or Human Will,

because all rational beings particiate in the same Will, as some philosophers of

the modernity will affirm).3

The third consequence is the subsequent individualism that flows from

nominalism. In fact, nominalism affirms that only individual beings exist.

Universal beings are only names without ontological consistency: human

society, the Church, the Franciscan order—none of these have ontological

consistency; only the individuals that compose them do.4 Because of this, the

point of departure for any analysis will be the individual agent. That is what we

see in neo-liberalism in general, and more specifically in the doctrine of the

social contract.5

1 This operation of an arbitrary will is explicitly in Nietzsche, whose thought is influenced by

nominalism (Milbank, Theology and social theory:, 286). 2 "It also meant that these essences became more individual, as each distinct essence had its

own distinct existence; this autonomy will be radicalised by Ockham." (Cunningham,

Genealogy of nihilism:, 14). 3 Frederick Copleston, A history of philosophy, vol. 3: Late medieval and renaissance

philosophy (New York: Doubleday, 1993), 94. "one single Will," as we detect in philosophers

such a Schopenhauer (Copleston, A history of philosophy, 272). "Yet the obvious implication

of 'many truths,' or rather 'many incommensurable truths,' is that every truth is arbitrary, every

truth is the will-to-power." (Milbank, Theology and social theory:, 261). 4 Copleston, A history of philosophy, 56.

5 Because it is rooted in an individualistic account of the will, oblivious to questions of its

providential purpose in the hands of God, it has difficulty in understanding any 'collective

making,' or genuinely social process. To keep notions of the State free from any suggestions of

a collective essence or generally recognized telos, it must be constructed on the individualist

model of dominium. It is in this inescapable imperative of nominalism-voluntarism that one

discovers the kinship at root of modern absolutism with modern liberalism." (Milbank,

Theology and social theory:, 14).


The Logic of Capitalism

In order to demonstrate that neo-liberal contemporary economic principles

are not neutral, we must show how the intrinsic logic of nominalism is present

in the doctrine of radical free market economics.

Neo-liberal economics is based on an anthropology in which the human

person is considered to be a totally autonomous subject. Autonomy is a key

category for capitalist ideology on two different levels: (i) on a macro level, the

market is considered as an entity that functions (well) without an exterior

intervention. In fact, putting restrictions on the "natural" (viz. "autonomous")

operation of the market is seen as an abuse and a mistake in that it fails to

respect the autonomy of the market; (ii) on a micro level, inside the market,

each human individual is seen as an autonomous economic agent, and it is the

interaction of the choices of all economics agents that establishes the

"equilibrium of the market."1

This brings us to the third consequence of nominalism mentioned above:

the tendency towards individualism. Although the doctrine of the free market

assumes a socialization of human persons, this socialization is based on

individualistic interests. The relations between different agents in the market

are made according to the individual will of each agent in order to achieve their

particular goals.2

When someone buys and sells a house, for instance, each individual in the

process attempts to satisfy an individual interest, rather than the interests of all.

Even if the orthodox neo-liberals assume that economic agents, in pursuing

their own interests, will (in principle) arise to the social optimum, the

individualistic tendency is present in the principle assumed.3 In other words,

free market economics see human selfishness as a good thing which makes the

entire system work.

There is an obvious connection between this tendency and the nominalist

presumption according to which reality is fundamentally created by Will. As a

consequence of this, in the doctrine of the free market, reality is not seen as a

given—i.e. it is not something discovered, but something made. In other words,

reality is a social/human construction.4 It does not bear any necessary

resemblance to Godʼs nature, or to any exterior entity. The reality of a free

market is no different: the social reality in which each human being has some

goods and properties to administer is also as it were a social/human

construction.


2 Milbank, Being reconciled: ontology and pardon, 165-166. "Moreover, if only individuals are

real, then political power must derive from the individual will." (Milbank, Beyond secular

order:, 163). 3 This is related to what Assmann refers to as 'economic rationality': it is a kind of rationality

that establishes laws in human relationships at the same level as Newtonʼs laws of physics; this

kind of law presumed that humans necessarily act from an inner egoism in pursuing their own

individual interests (Assmann and Hinkelammert, Lʼidolâtrie de marché: critique théologique,

182-183). 4 Milbank, Beyond secular order:, 104, 128-137.


According to capitalism, this constructed reality is produced by the human

desires of production and consumption that are intrinsically assumed in the so-

called "rules of the market."1 When we say that the price will grow if the

demands grows, and vice versa, we are saying that the reality of the market is

determined by the interaction of the will of each economic agent.

This kind of constructivism is present in the main criterion of profit. Profit

has become the main principle according to which people operate inside a free

market.2 This principle assumes that it is possible to create reality in such a

market: create products and consume them; create money, riches and wealth.

There is also implicitly a kind of anthropology, according to which human

individuals are endowed with the power to achieve, and impose, their own

desires. In this sense, Milbank sees in the forces of the free market the presence

of Nietzsche—a nominalist Nietzsche, that is—and specifically his principle of

the Will-to-power.3

I will not discuss the intrinsic violence between human beings that is

assumed by the doctrine of the free market. Here it is important simply to note

the inner utilitarism of economic neo-liberalism. In fact, conceiving reality as

something constructed by human desire and measured by profitability implies a

moral criterion according to which human actions and social politics can be

evaluated: namely, the criterion of efficacy, as measured by economical profit.4

Contemporary Capitalism Is a Coherentist Philosophy

All the things that have been said until now were already affirmed by

members of the Radical Orthodoxy movement as well as by Liberation

theologians. Now, in this present section of my paper, I would like to make a

small contribution to the debate. It concerns to the relationship between the

doctrine of free market and realism: namely, that a problem with radical neo-

liberalism is the lack of realism in such a system.

While I agree with Liberal Theologians who criticize neo-liberalism for

accepting the inevitability of things like austerity or unemployment,5 I also

1 Milbank, Beyond secular order:, 173-175.

2 Franz J. Hinkelammert, "La signification des critères de la décision économique (The

significance of the criteria of economic decision)," in Lʼidolâtrie de marché (The idolatry of

the market), Hugo Assmann and Franz J. Hinkelammert (Paris: Cerf, 1993), 297-299. 3 Milbank, Theology and social theory:, 260-261.

4 "Le lucre, ce mot qui, sur les lèvres des moralistes, pourrait avoir des résonances accusatrices,

quand il sʼagit de lʼ"instinct de lucre," est pour les économistes un concept parfaitement propre,

lié au règne de la libre créativité. Il nʼy a désormais plus dʼobstacle qui empêche de voir par où

passe le meilleur chemin vers le bien de tous." (Assmann and Hinkelammert, Lʼidolâtrie de

marché: critique théologique, 113). 5 "(…) lʼusurpation dʼune prétendue rationalité économique par le paradigme du marché nʼa été

possible parce quʼon est parvenu à imposer, au nom dʼune certaine 'rationalité économique,'

une complète reformulation du 'sens possible' de la vie humaine dans les sociétés complexes

(…) lʼéconomie de marché cherche à invalider (…) toute rediscussion dʼobjectifs désirables

qui ne seraient pas en accord avec ce qui a déjà été défini comme lʼunique possible." (Assmann

and Hinkelammert, Lʼidolâtrie de marché: critique théologique, 186).


insist that the current problems that have resulted from the subprime crisis are

actually due to a lack of realism in neo-liberalism.

It seems to me that a radical free market lacks realism, because it accepts

practices that are not rooted in reality. I mean, its practices need not correspond

to any kind of exterior reality.

This is what I want to show in the present section of the paper: a free

deregulated market allowed financial practices that were only intelligible

according to a non-foundationalist, coherentist philosophy.

In order to understand this point, we must also consider how the criterion

of profit works in a free and deregulated market: the marketʼs efficacy is

measured by the profitability of its transactions. However, if these internal

transactions have no limitations imposed by an outside institution, it means that

the process of making profit is being of in terms of its internal coherence,

without any reference to external reality. I will illustrate this point by

considering the 2007 subprime crisis.

Distinction Between a Foundationalist-Realist Philosophy and a Coherentist

Philosophy

Before I start explaining how the subprime crisis unfolded, it is important

to state briefly the difference between a foundationalist philosophy and a

coherentist philosophy. Of course, there are many kinds of foundationalist and

coherentist philosophies, and there are also authors who consider coherentism

to be a kind of foundationalism. However, I will focus on a factor that clearly

differentiates the two approaches: whether taking external reality into account

is needed to justify our knowledge.

To that end, I want to highlight the difference between the two

philosophical approaches which concern the correspondence of a system to a

substantial reality outside that system. We could say that, according to some

foundationalist philosophy, knowledge is achieved on the condition that the

"true prepositions" understood by the human intellect correspond to an ontic

(material) reality that exists independently of the human subject (even if that

reality is perceived by humans via empirical experience). This perception is the

basis of knowledge.1

1 Of course, I am not saying that, according to foundationalsim, absolutely everything must

have some kind of external existence. For example, according to foundationalists,

mathematical knowledge is justified without a connection to external reality:

"Foundationalism is a view concerning the structure of the system of justified belief possessed

by a given individual. Such a system is divided into "foundation" and "superstructure," so

related that beliefs in the latter depend on the former for their justification but not vice versa.

However, the view is sometimes stated in terms of the structure of knowledge rather than of

justified belief. If knowledge is true justified belief (plus, perhaps, some further condition), one

may think of knowledge as exhibiting a foundationalist structure by virtue of the justified belief

it involves. In any event, I will construe the doctrine as concerned primarily with justified

belief, though I will feel free to speak of knowledge instead from time to time.

The first step towards a more explicit statement of the position is to distinguish between

mediate (indirect) and immediate (direct) justification of belief. To say that a belief is

mediately justified is to say that it is justified by some appropriate relation to other justified


In this approach, a kind of realism is presumed: namely, it is assumed that

there is some reality independent of the human subject. This means that reality

is not a construction, but rather the basis from which one must depart to build

the edifice of knowledge.

Contrary to this approach, coherentism rejects the ontological foundation

of knowledge. In order to justify a proposition – meaning, to assure its

intelligibility –, it is enough to guarantee that the preposition is inside a

coherent logical system.1 In other words, coherentism takes validity – that is,

internal logical coherence – as the unique criterion of truth.

This approach rejects ontology and the realism behind it. "Truth" is

something that the human intellect constructs inside a coherent system: it is not

necessary to ensure some kind of correspondence to an exterior reality via

empirical experience.

As I showed before, this rejection of ontology is connected with

nominalism. Specifically, by rejecting ontology, the idea of participation (i.e.

that a system must be rooted in an external reality) is also abandoned.

Nominalist philosophy played a role in contemporary capitalism, not only in

the matter of individual will, but also by being focused exclusively on the

logical coherence of its system, rather than on any kind of foundation in reality.

An Exclusively Coherentist Philosophy behind the Subprime Crises

I will now try to show how the massive practice of subprime credits,

which brought about a global financial crisis, was only possible within this

beliefs, e.g., by being inferred from other justified beliefs that provide adequate support for it,

or, alternatively, by being based on adequate reasons. Thus if my reason for supposing that you

are depressed is that you look listless, speak in an unaccustomedly flat tone of voice, exhibit no

interest in things you are usually interested in, etc., then my belief that you are depressed is

justified, if at all, by being adequately supported by my justified belief that you look listless,

speak in a flat tone of voice ... .

A belief is immediately justified, on the other hand, if its justification is of some other sort, e.g.

if it is justified by being based on experience or if it is "self-justified." Thus my belief that you

look listless may not be based on anything else I am justified in believing but just on the way

you look at me. And my belief that 2 + 3 = 5 may be justified not because I infer it from

something else I justifiably believe, but simply because it seems obviously true to me"

(William P. Alston, "Foundationalism," in A companion to epistemology, ed. Jonathan Dancy,

Ernest Sosa, and Matthias Steup (Oxford: Blackwell, 2010), 382).

"Foundationalists believe that some beliefs are non-inferentially justified, or "foundational,"

and that all other justified beliefs depend for their justification on these foundational beliefs

(…) Some also accept perceptual beliefs, such as the belief that there is a red object in front of

one (when one sees such an object), as foundational." (Michal Huemer, "Foundations and

coherence," in A companion to epistemology, ed. Jonathan Dancy, Ernest Sosa, and Matthias

Steup (Oxford: Blackwell, 2010), 25). 1. "The coherence theory of justification locates the source of all justification for belief in the

relation of coherence. Typically, a system of beliefs is said to cohere well when it is consistent,

many of the beliefs in the system are mutually supporting (that is, entail each other or render

each other probable), and the system contains few or no anomalies (claims that have no

explanation within the system). While foundationalists may grant that coherence plays a role in

enhancing the justification of some beliefs, coherentists hold the stronger thesis that coherence

can by itself provide justification for belief" (Huemer, "Foundations and coherence," 22-23).


coherentist perspective of validity. It is only from this coherentist perspective

that the granting of credit based only on the speculative increase of house

prices could have been justified—and it was precisely this practice that

triggered the present global financial crisis. Outside a coherentist philosophy

this practice would not have been intelligible: its assumption that projected

increases in the market value of houses would be realized had no foundation in

reality.

The 2007 subprime crisis began with a massive campaign to provide loans

for buying houses in the USA at the beginning of the new millennium. This

generated an increased demand for houses, which naturally increased housing

prices. However, credit was often given to people without taking into account

whether they had the means to repay the debt. In fact, after issuing loans,

lenders issued even more loans to help pay for the original loans. These new

loans were issued on the assumption that housing prices would continue to

increase, and the collateral was the projected increase in the value of the

homes.1

It seems clear, especially in retrospect, that the process of offering people

credit was not grounded in reality. For it did not take into account whether the

debtor could pay back the loans; nor whether the projected increase in housing

value would actually be realized. It was a system that had internally valid logic

but also a system which was not rooted in reality.

The problem became even worse with the creation of financial products

such as CDO [Collateralized Debt Obligation] and later CDS [Credit Default

Swap]. At the beginning of 2008, the world financial market lost around 25

trillion US dollars (which is twice the French GDP), due to these poorly

conceived and totally unregulated financial products.2

We are talking about products that are obligations which have a debt as a

guarantee. Thus, instead of having collateral that is a substantial reality (or in

philosophical terms, an "ontic reality"), the guarantee was only a debt, which

some debtor was supposed to pay according to the projected increase in

housing values predicted by the internal logic of this coherentist system.

In the deregulated market, these financial products were evaluated

according to the level of risk associated with the debts in the CDOs. However,

the process of measuring the risk was made without any connection to the

reality of the concrete debtors. Financial institutions treated these products as

autonomous of the reality to which they ought to have been connected (by

"nature").

So, the debts and combinations of debts became a common product to sell

and to buy in the financial market. The lack of realism can be seen in two

ways.

First, the speculative price projections of the houses permitted loans to be

granted to debtors who lacked the means to repay such loans. Thus, the

1 Gaël Giraud, Illusion financière (Financial illusion) (Ivry-sur-Seine: Les Editions de

lʼEtelier, 2012), 44. 2 Giraud, Illusion financière, 34.


decision to grant credit was not rooted in reality (viz. the real economic means

of the debtor), but in a speculative increase of the market price.

Second, the CDOs became disconnected from the real debt that was

supposed to be the guarantee of the obligation in question. Conceived of as an

autonomous product, CDOs operated inside the market as ordinary

commodities like bread or milk. Without going into detail, it should be noted

that the market price of CDOs increased, not because the value of the loans

increased, but simply because of increased demand that was generated by

speculation.

As a consequence of this lack of realism, between 2001 and 2007, the

price of the houses increased by more than 100% compared to the average of

the entire preceding century.1

Conclusion

In this paper, I have tried to show how the doctrine of radical free market

economics contains presuppositions which are founded in the nominalist

theology of the late medieval era.

Nominalism is present in contemporary neo-liberal economic principles in

conceiving the human person as a radically autonomous subject with the power

to achieve its own interests.

A major danger of economic neo-liberalism is its ability to justify practices

that are neither rooted in, nor make sense in light of, objective reality. The

subprime crisis of 2007 and its disastrous results, which are still being felt in

almost all of Europe, could occur only because such unrealistic practices were

possible within the framework of a free deregulated market. As I showed

before, the financial product called CDOs, as well as the extending of credit to

unqualified borrowers, is only intelligible according to a philosophy that does

not insist on a correspondence between the internal logic of a coherent system

and an exterior substantial reality.

I am not absolutely rejecting all neo-liberal economics or the free market. I

do not agree with the catastrophists who see in the subprime crises the

inevitable end of capitalism, or even the definitive proof for Marxism. This is

not my position.

However, I think that the subprime crisis showed us how capitalism should

be reformulated.2 In particular, it showed us that markets must be regulated.

Limits should be imposed on financial practices and products: limits that

obligate economic agents to take into account a given reality.

1 Giraud, Illusion financière, 8.

2 This kind of reform is similar to the proposal made by the economist Gaël Giroud. More

specifically, in his Proposal #10, he states: " a regulation of the financial market is necessary in

order to avoid that the banker system operates only in function of their profits (in the short

term), even if such profits will destroy the economy outside the banker system." (Giroud and

Renouard, Vingt propositions pour réformer, 177-217).

Also Francis Fukuyama assumes that the lack of regulation in banking was the first cause of

the financial crisis (Fukuyama, Political order and political decay:, 4-5).


To that end, I spoke distinctly about "free market" and about "free

deregulated market." It is only the deregulated free market that brought us into

the present economic-financial crises. So, I assume that it is possible to

conceive of a "free regulated market," which is regulated according to some

reasonable and realistic limits.

The principles of a totally free deregulated market are not laws according

to which a human society must be governed, contrary to what some extreme

neo-liberals argue. In fact, the principles of an unregulated market are not only

unnecessary, they are also unreasonable. It does not make sense to extend

credit to unqualified lenders—outside of an exclusively coherentist philosophy,

that is. It does not make sense to allow the calculated price of a house to grow

to levels which no one could ever afford. It makes no sense to "fix" one

doomed financial product with another. Yet this is what happened in the

subprime crisis. Furthermore, it seems to me that today the imposition of some

kind of realism is also necessary in the context of the ecological crises.

The subprime crisis revealed the danger of a coherentist philosophy.

Through this experience, we saw that the logical coherence of a system is not

sufficient, and that some kind of correspondence to reality itself is necessary.

But the crisis shows not only the need of reform for economic policy: it also

implies that philosophers and theologians must recover and reappropriate

realism in their respective fields.

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